Modvat credit cannot be denied merely for a dealer's alleged lack of premises without proof of invalid invoices or non-receipt.

Modvat credit could not be denied merely because the registered dealer was alleged to have no godown or registered premises, where the inputs were covered by regular invoices and there was no allegation that the appellant had not received or used them. The tribunal held that the department could not rely on a finding about the dealer's records without first putting the dealer on notice and seeking proof of dispatch, receipt, storage and clearance. As the dealer's registration had not been cancelled and the invoices were not shown to be invalid, the credit denial and penalty were unsustainable and consequential relief followed.

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Issues: Whether Modvat credit could be denied merely because the registered dealer allegedly had no godown or registered premises, when the inputs were covered by regular invoices and there was no allegation of non-receipt of inputs by the appellant.

Analysis: The show cause notice did not allege that the inputs were not received in the appellant's factory or that they were not consumed there. The registered dealer was also not put to notice to produce records relating to dispatch, receipt, storage, or final clearance of the goods. A finding that the dealer failed to produce evidence of receipt, storage, and dispatch could not be sustained without first issuing notice to the dealer and requiring production of the relevant documents. Since the dealer's registration had not been cancelled for want of premises or godown, the invoices issued by him could not be treated as invalid merely on that allegation. The departmental reliance on the circular did not justify disallowance of credit on these facts.

Conclusion: Modvat credit could not be denied to the assessee on the basis alleged, and the order-in-appeal was liable to be set aside.

Final Conclusion: The credit demand and penalty were not sustainable, and the assessee was entitled to consequential relief.

Ratio Decidendi: Modvat credit cannot be denied solely because the registered dealer is alleged to lack premises or godown, unless the department establishes invalidity of the invoices or non-receipt of inputs through proper notice and evidence.

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